Bay Medical Explores Affiliation with Joint Venture

PANAMA CITY, Fla. (August 30, 2011) Bay Medical Center announced today that it may explore an affiliation with a joint venture company to be formed between Sacred Heart Health System ("Sacred Heart") and LHP Hospital Group, Inc. ("LHP").

If a non-binding letter of intent is approved by the Bay Medical Board of Trustees, the three organizations would negotiate a long-term lease arrangement under which the proposed joint venture would lease all of the assets of Bay Medical and operate the hospital and related healthcare facilities for a period of 40 years. If a final agreement is reached, it will be subject to the review and approval of the Bay Medical Center Board of Trustees, the Bay County Commission and other regulatory bodies.

The proposed affiliation would provide funding for Bay Medical to eliminate its $115 million debt and to establish a sizeable foundation to assist with unfunded community health needs in Bay County.

The proposed letter of intent between the three organizations contemplates that the new joint venture operating Bay Medical would:

• retain all staff at the hospital in their current position and salary
• continue to follow the same medical staff bylaws, rules, and regulations
• adopt and abide by the same uncompensated care policies as the hospital has in the past.

Bay Medical Center's Board of Trustees will remain in existence to oversee the terms of the lease and manage the newly-formed foundation's activities. Under the proposed agreement, Bay Medical will be operated as a for-profit hospital and, as such, will pay taxes. "If approved, ownership of BMC will remain unchanged with local leaders and local physicians having a voice in the governance of the facility," said BMC President and CEO, Steve Johnson. "We would gain all the advantages of belonging to a larger system. In Florida, more than 80 percent of hospitals are part of a system and that number continues to grow. Those advantages include further development of clinical service lines, access to capital for future investments in facilities and technology and greater economies of scale to continue to provide the highest quality of care to residents of Bay County."

Johnson said that, after researching multiple options, the proposed joint venture to be formed by Sacred Heart and LHP was the clear choice.

"We've believed for several years that partnering with a larger organization was inevitable. Sacred Heart was an obvious potential partner because it already has three hospitals in Northwest Florida, and, more importantly, because of its reputation for clinical excellence and its similar mission and commitment to the community," he said. "LHP's mission of working exclusively with not-for-profit hospitals and its extensive experience in hospital operations made it a natural fit for us as well."

"We are very fortunate to have been one of the top hospitals in the country for the last four years," Johnson said. "Maintaining that level of quality is extremely capital intensive. We sought a strategic partner to provide access to capital to remain competitive and to ensure the highest quality care for our children and our grandchildren."

Due to the downturn in the economy and higher unemployment rates, Bay Medical has seen a dramatic increase in charity and uncompensated care, costing the hospital $30 million last year alone. At the same time, the hospital has received lower reimbursement from governmental payors, with further funding cuts expected in the future. Johnson said that this trend is not sustainable for a public, stand-alone safety net hospital without tax support such as Bay Medical.

"We developed a comprehensive plan to deal with our many challenges," Johnson said. "We knew we had to complete the new tower to handle increased volumes and to attract more insured patients. We have worked to reduce our expenses and increase efficiency, and have saved millions of dollars as a result of those efforts. As the Board and hospital leaders conducted strategic planning for the long-term success of the hospital, we knew that we had to look at partnering as an option. We feel that we are proposing a great solution to ensure high quality healthcare well into the future."

About Sacred Heart Health System
Sacred Heart Health System is Northwest Florida's leading provider of high quality health care to children and adults. In 2011, Sacred Heart Hospital in Pensacola was named a recipient of the HealthGrades Distinguished Hospital Award. That award was based on an independent national study that ranked the hospital among the top 5 percent in the nation for superior patient outcomes. The hub of the Health System is its 466-bed hospital in Pensacola that includes the region's only Children's and Women's Hospital. Other key services include a Regional Heart and Vascular Institute, Stroke Center, Level II Trauma Center, a Cancer Center affiliated with M. D. Anderson Physicians Network, and a large regional network of primary care and specialty doctors stretching from Foley, Ala. to Panama City Beach, Fla. In 2003, the Health System opened Sacred Heart Hospital on the Emerald Coast, a 58-bed community hospital in Walton County. In March 2010, the new Sacred Heart Hospital on the Gulf, a 19-bed hospital, opened in Port St. Joe, Fla. Sacred Heart has approximately 4,500 employees and is part of Ascension Health, the nation's largest system of not-for-profit health care facilities. For more information, call 850-416-7000 or visit online at www.sacred-heart.org.

About LHP Hospital Group, Inc.
LHP Hospital Group, Inc. (LHP) is a privately held company established to provide essential capital and expertise to not-for-profit hospitals and hospital systems. In cooperation with local hospitals, LHP forms joint ventures to acquire, own, operate and manage acute care facilities in small cities and select urban markets throughout the United States. Headquartered in Plano, Texas, LHP is owned by affiliates of the private equity firm CCMP Capital Advisors, LLC and the CPP Investment Board as well as selected members of management and the board of directors. For more information, please go to www.lhphospitalgroup.com. 

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